Stocks, Commodities Drop on Concern Over Ireland's Debt Crisis; Bonds Rise
Pimco's Bill Gross
Andrew Harrer/Bloomberg
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., reduced holdings of government-related debt to the lowest level since July 2009 and added mortgage-related debt in October.
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., reduced holdings of government-related debt to the lowest level since July 2009 and added mortgage-related debt in October. Photographer: Andrew Harrer/Bloomberg
Nov. 16 (Bloomberg) -- Dennis Hynes, chief market strategist at RW Pressprich & Co., and David Abella, portfolio manager at Rochdale Investment Management, talk about the outlook for U.S. stocks and their investment strategies. Abella also discusses the performance of Wal-Mart Stores Inc. They talk with Pimm Fox on Bloomberg's Television's "Taking Stock." (Source: Bloomberg)
Nov. 16 (Bloomberg) -- Daragh Maher, deputy head of global foreign-exchange strategy at Credit Agricole SA, discusses Ireland's debt crisis and the outlook for a bailout of its banks. Maher talks with Carol Massar, Francine Lacqua, Mike McKee and Sara Eisen on Bloomberg Television's "In the Loop." (Source: Bloomberg)
Nov. 16 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks sank, sending the Standard & Poor’s 500 Index to the biggest slump since August, amid concern that the debt crisis in Ireland and Greece is worsening and that China will act to slow its economy. Bloomberg's Pimm Fox also speaks. (Source: Bloomberg)
Nov. 11 (Bloomberg) -- Nick Bennenbroek, head of currency strategy at Wells Fargo & Co, talks with Bloomberg's Mark Crumpton about the outlook for currencies and the G-20 talks in Seoul. Bennenbroek says the U.S. dollar still has "a little bit further to fall." (Source: Bloomberg)
Global stocks fell for a seventh day, the longest streak since January, and commodities slid amid concern that the debt crisis in Ireland and Greece is worsening and that China will act to slow its economy. U.S. Treasuries snapped a two-day plunge and the dollar rallied.
The MSCI World Index slid 1.9 percent, the most since Aug. 11. The Standard & Poor’s 500 Index sank 1.6 percent. Ten-year Treasury yields fell 12 basis point to 2.84 percent after a 31- point gain over the past two days. Irish 10-year yields increased 28 basis points. The Dollar Index rose 0.9 percent, while nickel led commodities lower. After the close of U.S. markets, S&P 500 futures climbed 0.3 percent at 7 p.m. in New York while Japanese and Australian stocks fell in early trading.
The S&P 500 plunged the most in three months and the Stoxx Europe 600 Index sank the most since July. Irish Prime Minister Brian Cowen said he doubts a concrete agreement will be reached to resolve the government’s fiscal crisis at a meeting of European finance ministers, while Austria threatened to block its next transfer of financial rescue funds to Greece.
“There’s still concern about what’s going on in Europe and some concern about China,” said Michael Strauss, who helps oversee about $27 billion as a managing director at Commonfund in Wilton, Connecticut. “In the U.S., the economy clearly improved from the soft spot we saw earlier this year. That tells me that the Fed panicked and did quantitative easing and maybe it’s not needed.”
Treasuries Rebound
Treasuries slid yesterday, sending 30-year yields to the highest level since May, and the S&P 500 erased an early rally amid increased criticism of the Fed’s plan to stimulate growth through bond purchases and growing concern that a swelling U.S. deficit will lead to higher borrowing costs.
The S&P 500 fell for a fourth day today, its longest streak since August, even after U.S. factory production rose in October by the most in three months, signaling industries continue to support the economic recovery. Other data showed wholesale costs in the U.S. rose less than forecast in October, underscoring the Fed’s rationale for quantitative easing.
Two regional Fed bank presidents said they expect the central bank to buy the entire $600 billion of Treasuries that policy makers authorized Nov. 3 in a bid to reduce unemployment.
“Given my forecast, I fully anticipate we will purchase the entire amount,” Boston Fed President Eric Rosengren said today in an interview with Bloomberg News. James Bullard of St. Louis said in a separate interview the Fed would buy less than planned only after a big improvement in the economy.
Fed Pressure
Republican lawmakers said they want to compel the Fed to focus solely on controlling inflation, upending a mandate that’s shaped monetary policy for more than 30 years. Representative Mike Pence, chairman of the House Republican Conference, said he will introduce a bill requiring the Fed to promote price stability while no longer seeking maximum employment. Senator Bob Corker, a member of the Senate Banking Committee, backed a single mandate for the Fed, saying the Fed’s dual roles are “confusing to the market.”
Commodity producers led today’s declines, with Exxon Mobil Corp. dropping 2.2 percent and Freeport-McMoRan Copper & Gold Inc. losing 4.3 percent.
Funds that invest in bonds tumbled. The John Hancock Investors Trust, which buys debt securities, lost 6.3 percent for the biggest decrease since November 2008. Pimco Corporate Income Fund, an owner of corporate bonds, tumbled 3.7 percent.
Earnings Watch
Only two stocks rose in the 30-company Dow Jones Industrial Average, which tumbled 178.47 points, or 1.6 percent, to 11,023.50 and dipped below 11,000 for the first time in a month.
Wal-Mart Stores Inc. rose 0.6 percent after reporting a 9.3 percent increase in quarterly profit as overseas growth helped make up for U.S. sales declines. Home Depot Inc. climbed 1 percent after third-quarter profit beat the average estimate in a Bloomberg survey and the company increased its earnings forecast for the year.
The S&P 500 is up about 12 percent since the end of August amid improving earnings and speculation the Fed will be successful in stimulating the economy. Earnings per share have topped analysts’ average estimates at about three-quarters of the 441 companies in the S&P 500 that have reported results since Oct. 7, according to data compiled by Bloomberg.
The Stoxx Europe 600 Index sank 2.3 percent, the most since July 1. Basic-resources stocks led declines, as Rio Tinto Group slumped 4.8 percent and Antofagasta Plc plunged 5.5 percent. HSBC Holdings Plc fell 2.5 percent. Acciona SA retreated 6.6 percent, the most since May, after the Spanish construction company said profit fell.
China Stocks Plunge
The Shanghai Composite Index fell 4 percent to the lowest level in a month as PetroChina Co. and Jiangxi Copper Co. plunged more than 6.5 percent on concern tighter monetary policy will curb demand for commodities. The China Securities Journal reported that the country will introduce measures to control rising food prices in the world’s fastest-growing major economy.
South Korea’s Kospi Index of shares lost 0.8 percent, while the won strengthened 0.4 percent against the dollar. The Bank of Korea raised the seven-day repurchase rate by 0.25 percentage point to 2.5 percent today, the second increase this year, and dropped a reference to keeping borrowing costs “accommodative.”
Thirty-year Treasury yields decreased 15 basis points, or 0.15 percentage point, to 4.26 percent after surging 17 basis points in the previous two days. The 31-point gain in ten-year yields during the past two days was biggest back-to-back rise since January 2009.
Gross Reduces Treasuries
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., reduced holdings of government-related debt to the lowest level since July 2009 and added mortgage-related debt in October. The $256 billion Total Return Fund’s investment in government-related securities fell to 28 percent of assets from 33 percent the previous month, according to data the Newport Beach, California, company published on its website yesterday.
Market News International reported yesterday that the lead analyst at Moody’s Investors Service said a permanent extension of former President George W. Bush’s tax cuts would be a “definite negative” for the U.S. credit rating. Moody’s is “not contemplating changing anything anytime soon,” Steven Hess, senior credit officer in New York, said in an interview with Bloomberg News later.
‘Choppy Ride’
“It will be a choppy ride before we find some footing,” said Burt White, who helps oversee $284 billion as chief investment officer at LPL Financial Corp. in Boston. “The market is really trying to get its arms around a few lingering questions -- China, Europe, tax policy or whether or not QE2 is going to work or if it’s even necessary.”
The extra yield investors demand to hold Irish 10-year notes instead of similar-maturity benchmark German bunds widened 22 basis points to 562 basis points after falling from a record 652 basis points, or 6.52 percentage points, reached on Nov. 11.
Ireland was in talks over a financial rescue with the European Union and International Monetary Fund that would mean the nation wouldn’t have to tap the bond market for an extended period, said a person with knowledge of the situation, who spoke on condition of anonymity. It would also give the government capital to help banks if necessary. Talks are continuing and no decision has been reached, the person said.
Ireland says it’s fully funded into mid-2011.
“It is clear that as much as Ireland protests that they can fund themselves for a while yet, the European Union would like the situation settled as quickly as possible to try to stop the contagion effect,” Gary Jenkins, a strategist at Evolution Securities in London, wrote in a report today.
Default Swaps
Greek 10-year bond yields surged 20 basis points to 11.62 percent amid concern that the nation, which received a 110 billion-euro bailout in May, won’t be able to cut its budget deficit fast enough. Austria is threatening to block its next transfer of funds to Greece unless the government gets back on track a deficit-cutting plan agreed just six months ago with the EU and IMF.
“We are getting indications that the Greeks can’t stick to their plan in a sufficient manner, in particular on the revenue side,” Finance Minister Josef Proell said, according to a government e-mail that confirmed remarks made after a cabinet meeting today. “The data we have at the moment doesn’t give any reason to approve the December tranche from the Austrian point of view.”
Greece led a surge in the cost of insuring European government debt. Credit-default swaps on Greece soared 86 basis points to 944, the highest since June 29, according to data provider CMA. Contracts on Ireland rose 22 basis points to 515, Portugal climbed 13 to 426, Italy increased 7 to 188 and Spain was up 8 at 259.
Nickel, wheat and aluminum lost at least 6.6 percent to lead the Thomson Reuters/Jefferies CRB index of commodities to a 3.2 percent decline and extend its drop over the past week to 7.2 percent, the biggest plunge in almost two years. Copper for delivery in March dropped 4.9 percent, the most in four months, to $3.731 a pound in New York. Gold futures retreated 2.2 percent to $1,338.40 an ounce.
To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Stephen Kirkland in London at skirkland@bloomberg.net.
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.
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